Chips are down for Samsung after profits fall by 56pc in Q2

Shares in Samsung Electronics have slumped after it reported that profits for Q2 more than halved compared with a year ago.

A major upheaval in the semiconductor industry has seen Samsung Electronics report earnings that have done little to appease its shareholders. The South Korean tech giant revealed that its operating profit for the quarter amounted to 6.6trn won, equivalent to about €5bn. This figure is down 55.61pc compared with the same time last year.

In a statement, the company gave an explanation for the poor return. “The weakness and price declines in the memory chip market persisted as effects of inventory adjustments by major data centre customers in the previous quarters continued, despite a limited recovery in demand,” it said.

According to CNBC, the figures released by Samsung are slightly better than the company had predicted but, regardless, its shares slumped by 2.58pc soon after its earnings were revealed.

Looking at its semiconductor business, Samsung said that it made an operating profit of 3.4trn won for Q2, down almost 71pc when compared with this time last year. Despite such a worrying decline, the company said its memory division is seeing increased demand, with growth expected for the second half of 2019. However, it still sees “volatility in the overall industry due to increased external uncertainties”.

These earnings mark the second consecutive quarter where operating profit has more than halved compared with 2018, after Samsung’s profits last quarter fell by 60pc.

One of the big difficulties facing Samsung and other South Korean chipmakers is the ongoing trade dispute between its native country and continental rival Japan. The Japanese government has restricted South Korea’s access to critical high-tech materials used to make chips and smartphones displays. While Samsung is expected to have enough inventory in the short term, a long, drawn-out trade battle could be immensely damaging.

On the earnings call, a Samsung executive said: “The visibility is low. However, our executives and the relevant business divisions are dedicating their utmost efforts and deriving solutions to minimise any potential negative impact these new measures may have on our manufacturing process.”